It is gratifying to report that for the fourth consecutive year the
state of the Union in general is good. We are at peace. The country as
a whole has had a prosperity never exceeded. Wages are at their highest
range, employment is plentiful. Some parts of agriculture and industry
have lagged; some localities have suffered from storm and flood. But such
losses have been absorbed without serious detriment to our great economic
structure. Stocks of goods are moderate and a wholesome caution is prevalent.
Rates of interest for industry, agriculture, and government have been reduced.
Savers and investors are providing capital for new construction in industry
and public works. The purchasing power of agriculture has increased. If
the people maintain that confidence which they are entitled to have in
themselves, in each other, and in America, a comfortable prosperity will
continue.

CONSTRUCTIVE ECONOMY

Without constructive economy in Government expenditures we should not
now be enjoying these results or these prospects. Because we are not now
physically at war, some people are disposed to forget that our war debt
still remains. The Nation must make financial sacrifices, accompanied by
a stern self-denial in public expenditures, until we have conquered the
disabilities of our public finance. While our obligation to veterans and
dependents is large and continuing, the heavier burden of the national
debt is being steadily eliminated. At the end of this fiscal year it will
be reduced from about $26,600,000,000 to about $17,975,000,000. Annual
interest, including war savings, will have been reduced from $1,055,000,000
to $670,0001,000. The sacrifices of the people, the economy of the Government,
are showing remarkable results. They should be continued for the purpose
of relieving the Nation of the burden of interest and debt and releasing
revenue for internal improvements and national development.

Not only the amount, but the rate, of Government interest has been reduced.
Callable bonds have been refunded and paid, so that during this year the
average rate of interest on the present public debt for the first time
fell below 4 per cent. Keeping the credit of the Nation high is a tremendously
profitable operation.

TAX REDUCTION

The immediate fruit of economy and the retirement of the public debt
is tax reduction. The annual saving in interest between 1925 and 1929 is
$212,000,000. Without this no bill to relieve the taxpayers would be worth
proposing. The three measures already enacted leave our Government revenues
where they are not oppressive. Exemptions, have been increased until 115,000,000
people make but 2,500,000 individual taxable returns, so that further reduction
should be mainly for the purpose of removing inequalities. The Secretary
of the Treasury has recommended a measure which would give us a much better
balanced system of taxation and without oppression produce sufficient revenue.
It has my complete support.

Unforeseen contingencies requiring money are always arising. Our probable
surplus for June 30, 1929, is small. A slight depression in business would
greatly reduce our revenue because of our present method of taxation. The
people ought to take no selfish attitude of pressing for removing moderate
and fair taxes which might produce a deficit. We must keep our budget balanced
for each year. That is the corner stone of our national credit, the trifling
price we pay to command the lowest rate of interest of any great power
in the world. Any surplus can be applied to debt reduction, and debt reduction
is tax reduction. Under the present circumstances it would be far better
to leave the rates as they are than to enact a bill carrying the peril
of a deficit. This is not a problem to be approached in a narrow or partisan
spirit. All of those who participate in finding a reasonable solution will
be entitled to participate in any credit that accrues from it without regard
to party. The Congress has already demonstrated that tax legislation can
be removed from purely political consideration into the realm of patriotic
business principles.

Any bill for tax reduction should be written by those who are responsible
for raising, managing, and expending the finances of the Government. If
special interests, too often selfish, always uninformed of the national
needs as a whole, with hired agents using their proposed beneficiaries
as engines of propaganda, are permitted to influence the withdrawal of
their property from taxation, we shall have a law that is unbalanced and
unjust, bad for business, bad for the country, probably resulting in a
deficit, with disastrous financial Consequences. The Constitution has given
the Members of the Congress sole authority to decide what tax measures
shall be presented for approval. While welcoming information from any quarter,
the Congress should continue to exercise its own judgment in a matter so
vital and important to all the interests of the country as taxation.

NATIONAL DEFENSE

Being a nation relying not on force, but on fair dealing and good will,
to maintain peace with others, we have provided a moderate military force
in a form adapted solely to defense. It should be continued with a very
generous supply of officers and with the present base of personnel, subject
to fluctuations which may be temporarily desirable.

The five-year program for our air forces is in keeping with this same
policy and commensurate with the notable contributions of America to the
science of aeronautics. The provisions of the law lately enacted are being
executed as fast as the practical difficulties of an orderly and stable
development permit.

While our Army is small, prudence requires that it should be kept in
a high state of efficiency and provided with such supplies as would permit
of its immediate expansion. The garrison ration has lately been increased.
Recommendations for an appropriation of $6,166,000 for new housing made
to the previous Congress failed to pass. While most of the Army is well
housed, some of it which is quartered in wartime training camps is becoming
poorly housed. In the past three years $12,533,000 have been appropriated
for reconstruction and repairs, and an authorization has been approved
of $22,301,000 for new housing, under which $8,070,000 has already been
appropriated. A law has also been passed, complying with the request of
the War Department, allocating funds received from the sale of buildings
and land for housing purposes. The work, however, is not completed, so
that other appropriations are being recommended.

Our Navy is likewise a weapon of defense. We have a foreign commerce
and ocean lines of trade unsurpassed by any other country. We have outlying
territory in the two great oceans and long stretches of seacoast studded
with the richest cities in the world. We are responsible for the protection
of a large population and the greatest treasure ever bestowed upon any
people. We are charged with an international duty of defending the Panama
Canal. To meet these responsibilities we need a very substantial sea armament.
It needs aircraft development, which is being provided under the five-year
program. It needs submarines as soon as the department decides upon the
best type of construction. It needs airplane carriers and a material addition
to its force of cruisers. We can plan for the future and begin a moderate
building program.

This country has put away the Old World policy of competitive armaments.
It can never be relieved of the responsibility of adequate national defense.
We have one treaty secured by an unprecedented attitude of generosity on
our part for a limitation in naval armament. After most careful preparation,
extending over months, we recently made every effort to secure a three-power
treaty to the same end. We were granted much cooperation by Japan, but
we were unable to come to an agreement with Great Britain. While the results
of the conference were of considerable value, they were mostly of a negative
character. We know now that no agreement can be reached which will be inconsistent
with a considerable building program on our part. We are ready and willing
to continue the preparatory investigations on the general subject of limitation
of armaments which have been started under the auspices of the League of
Nations.

We have a considerable cruiser tonnage, but a part of it is obsolete.
Everyone knew that had a three-power agreement been reached it would have
left us with the necessity of continuing our building program. The failure
to agree should not cause us to build either more or less than we otherwise
should. Any future treaty of limitation will call on us for more ships.
We should enter on no competition. We should refrain from no needful program.
It should be made clear to all the world that lacking a definite agreement,
the attitude of any other country is not to be permitted to alter our own
policy. It should especially be demonstrated that propaganda will not cause
us to change our course. Where there is no treaty limitation, the size
of the Navy which America is to have will be solely for America to determine.
No outside influence should enlarge it or diminish it. But it should be
known to all that our military power holds no threat of aggrandizement.
It is a guaranty of peace and security at home, and when it goes abroad
it is an instrument for the protection of the legal rights of our citizens
under international law, a refuge in time of disorder, and always the servant
of world peace. Wherever our flag goes the rights of humanity increase.

MERCHANT MARINE

The United States Government fleet is transporting a large amount of
freight and reducing its drain on the Treasury. The Shipping Board is constantly
under pressure, to which it too often yields, to protect private interests,
rather than serve the public welfare. More attention should be given to
merchant ships as an auxiliary of the Navy. The possibility of including
their masters and crews in the Naval Reserve, with some reasonable compensation,
should be thoroughly explored as a method of encouraging private operation
of shipping. Public operation is not a success. No investigation, of which
I have caused several to be made, has failed to report that it could not
succeed or to recommend speedy transfer to private ownership. Our exporters
and importers are both indifferent about using American ships. It should
be our policy to keep our present vessels in repair and dispose of them
as rapidly as possible, rather than undertake any new construction. Their
operation is a burden on the National Treasury, for which we are not receiving
sufficient benefits.

COMMERCIAL AVIATION

A rapid growth is taking place in aeronautics. The Department of Commerce
has charge of the inspection and licensing system and the construction
of national airways. Almost 8,000 miles are already completed and about
4,000 miles more contemplated. Nearly 4,400 miles are now equipped and
over 3,000 miles more will have lighting and emergency landing fields by
next July. Air mail contracts are expected to cover 24 of these lines.
Daily airway flying is nearly 15,000 miles and is expected to reach 25,000
miles early next year.

Flights for other purposes exceed 22,000 miles each day. Over 900 airports,
completed and uncompleted, have been laid out. The demand for aircraft
has greatly increased. The policy already adopted by the Congress is producing
the sound development of this coming industry.

WESTERN HEMISPHERE AIR MAIL

Private enterprise is showing much interest in opening up aviation service
to Mexico and Central and South America. We are particularly solicitous
to have the United States take a leading part in this development. It is
understood that the governments of our sister countries would be willing
to cooperate. Their physical features, the undeveloped state of their transportation,
make an air service especially adaptable to their usage. The Post Office
Department should be granted power to make liberal long-term contracts
for carrying our mail, and authority should be given to the Army and the
Navy to detail aviators and planes to cooperate with private enterprise
in establishing such mail service with the consent of the countries concerned.
A committee of the Cabinet will later present a report on this subject.

GOOD ROADS

The importance and benefit of good roads is more and more coming to
be appreciated. The National Government has been making liberal contributions
to encourage their construction. The results and benefits have been very
gratifying. National participation, however, should be confined to trunk-line
systems. The national tax on automobiles is now nearly sufficient to meet
this outlay. This tax is very small, and on low-priced cars is not more
than $2 or $3 each year.

While the advantage of having good roads is very large, the desire for
improved highways is not limited to our own country. It should and does
include all the Western Hemisphere. The principal points in Canada are
already accessible. We ought to lend our encouragement in any way we can
for more good roads to all the principal points in this hemisphere south
of the Rio Grande. It has been our practice to supply these countries with
military and naval advisers, when they have requested it, to assist them
in national defense. The arts of peace are even more important to them
and to us. Authority should be given by law to provide them at their request
with engineering advisers for the construction of roads and bridges. In
some of these countries already wonderful progress is being made in road
building, but the engineering features are often very exacting and the
financing difficult. Private interests should look with favor on all reasonable
loans sought by these countries to open such main lines of travel.

This general subject has been promoted by the Pan American Congress
of Highways, which will convene again at Rio de Janeiro in July, 1928.
It is desirable that the Congress should provide for the appointment of
delegates to represent the Government of the United States.

CUBAN PARCEL POST

We have a temporary parcel-post convention with Cuba. The advantage
of it is all on our side. During 1926 we shipped twelve times as many parcels,
weighing twenty-four times as much, as we received. This convention was
made on the understanding that we would repeal an old law prohibiting the
importation of cigars and cigarettes in quantities less than 3,000 enacted
in 1866 to discourage smuggling, for which it has long been unnecessary.
This law unjustly discriminates against an important industry of Cuba.
Its repeal has been recommended by the Treasury and Post Office Departments.
Unless this is done our merchants and railroads will find themselves deprived
of this large parcel-post business after the 1st of next March, the date
of the expiration of the convention, which has been extended upon the specific
understanding that it would expire at that time unless this legislation
was enacted. We purchase large quantities of tobacco made in Cuba. It is
not probable that our purchases would be any larger if this law was repealed,
while it would be an advantage to many other industries in the United States.

INSULAR POSSESSIONS

Conditions in the Philippine Islands have been steadily improved. Contentment
and good order prevail. Roads, irrigation works, harbor improvements, and
public buildings are being constructed. Public education and sanitation
have been advanced. The Government is in a sound financial condition. These
immediate results were especially due to the administration of Gov. Gen.
Leonard Wood. The six years of his governorship marked a distinct improvement
in the islands and rank as one of the outstanding accomplishments of this
distinguished man. His death is a loss to the Nation and the islands.

Greater progress could be made, more efficiency could be put. into administration,
if the Congress would undertake to expend, through its appropriating power,
all or a part of the customs revenues which are now turned over to the
Philippine treasury. The powers of the auditor of the islands also need
revision and clarification. The government of the islands is about 98 per
cent in the hands of the Filipinos. An extension of the policy of self-government
will be hastened by the demonstration on their part of their desire and
their ability to carry out cordially and efficiently the provisions of
the organic law enacted by the Congress for the government of the islands.
It would be well for a committee of the Congress to visit the islands every
two years.

A fair degree of progress is being made in Porto Rico. Its agricultural
products are increasing; its treasury position, which has given much concern,
shows improvement. I am advised by the governor that educational facilities
are still lacking. Roads are being constructed, which he represents are
the first requisite for building schoolhouses. The loyalty of the island
to the United States is exceedingly gratifying. A memorial will be presented
to you requesting authority to have the governor elected by the people
of Porto Rico. This was never done in the case of our own Territories.
It is admitted that education outside of the towns is as yet very deficient.
Until it has progressed further the efficiency of the government and the
happiness of the people may need the guiding hand of an appointed governor.
As it is not contemplated that any change should be made immediately, the
general subject may well have the thoughtful study of the Congress.

PANAMA CANAL

The number of commercial ships passing through the Panama Canal has
increased from 3,967 in 1923 to 5,475 in 1927. The total amount of tolls
turned into the Treasury is over $166,000,000, while all the operations
of the canal have yielded a surplus of about $80,000,000. In order to provide
additional storage of water and give some control over the floods of the
Chagres River, it is proposed to erect a dam to cost about $12,000,000
at Alhajuela. It will take some five years to complete this work.

AGRICULTURE

The past year has seen a marked improvement in the general condition
of agriculture. Production is better balanced and without acute shortage
or heavy surplus. Costs have been reduced and the average output of the
worker increased. The level of farm prices has risen while others have
fallen, so that the purchasing power of the farmer is approaching a normal
figure. The individual farmer is entitled to great credit for the progress
made since 1921. He has adjusted his production and through cooperative
organizations and other methods improved his marketing. He is using authenticated
facts and employing sound methods which other industries are obliged to
use to secure stability and prosperity. The old-fashioned haphazard system
is being abandoned, economics are being applied to ascertain the best adapted
unit of land, diversification is being promoted, and scientific methods
are being used in production, and business principles in marketing.

Agriculture has not fully recovered from postwar depression. The fact
is that economic progress never marches forward in a straight line. It
goes in waves. One part goes ahead, while another halts and another recedes.
Everybody wishes agriculture to prosper. Any sound and workable proposal
to help the farmer will have the earnest support of the Government. Their
interests are not all identical. Legislation should assist as many producers
in as many regions as possible. It should be the aim to assist the farmer
to work out his own salvation socially and economically. No plan will be
of any permanent value to him which does not leave him standing on his
own foundation.

In the past the Government has spent vast sums to bring land under cultivation.
lt. is apparent that this has reached temporarily the saturation point.
We have had a surplus of production and a poor market for land, which has
only lately shown signs of improvement. The main problem which is presented
for solution is one of dealing with a surplus of production. It is useless
to propose a temporary expedient. What is needed is permanency and stability.
Government price fixing is known to be unsound and bound to result in disaster.
A Government subsidy would work out in the same way. It can not be sound
for all of the people to hire some of the people to produce a crop which
neither the producers nor the rest of the people want.

Price fixing and subsidy will both increase the surplus, instead of
diminishing it. Putting the Government directly into business is merely
a combination of subsidy and price fixing aggravated by political pressure.
These expedients would lead logically to telling the farmer by law what
and how much he should plant and where he should plant it, and what and
how much he should sell and where he should sell it. The most effective
means of dealing with surplus crops is to reduce the surplus acreage. While
this can not be done by the individual farmer, it can be done through the
organizations already in existence, through the information published by
the Department of Agriculture, and especially through banks and others
who supply credit refusing to finance an acreage manifestly too large.

It is impossible to provide by law for an assured success and prosperity
for all those who engage in farming. If acreage becomes overextended, the
Government can not assume responsibility for it. The Government can, however,
assist cooperative associations and other organizations in orderly marketing
and handling a surplus clearly due to weather and seasonal conditions,
in order to save the producer from preventable loss. While it is probably
impossible to secure this result at a single step, and much will have to
be worked out by trial and rejection, a beginning could be made by setting
up a Federal board or commission of able and experienced men in marketing,
granting equal advantages under this board to the various agricultural
commodities and sections of the country, giving encouragement to the cooperative
movement in agriculture, and providing a revolving loan fund at a moderate
rate of interest for the necessary financing. Such legislation would lay
the foundation for a permanent solution of the surplus problem.

This is not a proposal to lend more money to the farmer, who is already
fairly well financed, but to lend money temporarily to experimental marketing
associations which will no doubt ultimately be financed by the regularly
established banks, as were the temporary operations of the War Finance
Corporation. Cooperative marketing especially would be provided with means
of buying or building physical properties.

The National Government has almost entirely relieved the farmer from
income taxes by successive tax reductions, but State and local taxes have
increased, putting on him a grievous burden. A policy of rigid economy
should be applied to State and local expenditures. This is clearly within
the legislative domain of the States. The Federal Government has also improved
our banking structure and system of agricultural credits. The farmer will
be greatly benefited by similar action in many States. The Department of
Agriculture is undergoing changes in organization in order more completely
to separate the research and regulatory divisions, that each may be better
administered. More emphasis is being placed on the research program, not
only by enlarging the appropriations for State experiment stations but
by providing funds for expanding the research work of the department. It
is in this direction that much future progress can be expected.

THE PROTECTIVE TARIFF

The present tariff rates supply the National Treasury with well over
$600,000,000 of annual revenue. Yet, about 65 per cent of our imports come
in duty free. Of the remaining 35 per cent of imports on which duties are
laid about 23 per cent consists of luxuries and agricultural products,
and the balance of about 12 per cent, amounting, to around $560,000,000
is made up of manufactures and merchandise. As no one is advocating any
material reduction in the rates on agriculture or luxuries, it is only
the comparatively small amount of about $560,000,000 of other imports that
are really considered in any discussion of reducing tariff rates. While
this amount, duty free, would be large enough seriously to depress many
lines of business in our own country, it is of small importance when spread
over the rest of the world.

It is often stated that a reduction of tariff rates on industry would
benefit agriculture. It would be interesting to know to what commodities
it is thought this could be applied. Everything the farmer uses in farming
is already on the free list. Nearly everything he sells is protected. It
would seem to be obvious that it is better for tile country to have the
farmer raise food to supply the domestic manufacturer than the foreign
manufacturer. In one case our country would have only the farmer; in the
other it would have the farmer and the manufacturer. Assuming that Europe
would have more money if it sold us larger amounts of merchandise, it is
not certain it would consume more food, or, if it did, that its purchases
would be made in this country. Undoubtedly it would resort to the cheapest
market, which is by no means ours. The largest and best and most profitable
market for the farmer in the world is our own domestic market. Any great
increase in manufactured imports means the closing of our own plants. Nothing
would be worse for agriculture.

Probably no one expects a material reduction in the rates on manufactures
while maintaining the rates on agriculture. A material reduction in either
would be disastrous to tile farmer. It would mean a general shrinkage of
values, a deflation of prices, a reduction of wages, a general depression
carrying our people down to the low standard of living in our competing
countries. It is obvious that this would not improve but destroy our market
for imports, which is best served by maintaining our present high purchasing
power under which in the past five years imports have increased 63 per
cent.

FARM LOAN SYSTEM

It is exceedingly important that the Federal land and joint-stock land
banks should furnish the best possible service for agriculture. Certain
joint-stock banks have fallen into improper and unsound practices, resulting
in the indictment of the officials of three of them. More money has been
provided for examinations, and at the instance of the Treasury rules and
regulations of the Federal Farm Board have been revised. Early last May
three of its members resigned. Their places were filled with men connected
with the War Finance Corporation. Eugene Meyer being designated as Farm
Loan Commissioner. The new members have demonstrated their ability in the
field of agricultural finance in the extensive operations of he War Finance
Corporation. Three joint-stock banks have gone into receivership. It is
necessary to preserve the public confidence in this system in order to
find a market for their bonds. A recent flotation was made at a record
low rate of 4 per cent. Careful supervision is absolutely necessary to
protect the investor and enable these banks to exercise their chief function
in serving agriculture.

MUSCLE SHOALS

The last year has seen considerable changes in the problem of Muscle
Shoals. Development of other methods show that nitrates can probably be
produced at less cost than by the use of hydroelectric power. Extensive
investigation made by the Department of War indicates that the nitrate
plants on this project are of little value for national defense and can
probably be disposed of within two years. The oxidation part of the plants,
however, should be retained indefinitely. This leaves this project mostly
concerned with power. It should, nevertheless, continue to be dedicated
to agriculture. It is probable that this desire can be best served by disposing
of the plant and applying the revenues received from it to research for
methods of more economical production of concentrated fertilizer and to
demonstrations and other methods of stimulating its use on the farm. But
in disposing of the property preference should be given to proposals to
use all or part of it for nitrate production and fertilizer manufacturing.

FLOOD CONTROL

For many years the Federal Government has been building a system of
dikes along the Mississippi River for protection against high water. During
the past season the lower States were overcome by a most disastrous flood.
Many thousands of square miles were inundated a great many lives were lost,
much livestock was drowned, and a very heavy destruction of property was
inflicted upon the inhabitants. The American Red Cross at once went to
the relief of the stricken communities. Appeals for contributions have
brought in over $17,000,000. The Federal Government has provided services,
equipment, and supplies probably amounting to about $7,000,000 more. Between
$5,000,000 and $10,000,000 in addition have been provided by local railroads,
the States, and their political units. Credits have been arranged by the
Farm Loan Board, and three emergency finance corporations with a total
capital of $3,000,000 have insured additional resources to the extent of
$12,000,000. Through these means the 700,000 people in the flooded areas
have been adequately supported. Provision has been made to care for those
in need until after the 1st of January.

The Engineering Corps of the Army has contracted to close all breaks
in the dike system before the next season of high water. A most thorough
and elaborate survey of the whole situation has been made and embodied
in a report with recommendations for future flood control, which will be
presented to the Congress. The carrying out of their plans will necessarily
extend over a series of years. They will call for a raising and strengthening
of the dike system with provision for emergency spillway's and improvements
for the benefit of navigation.

Under the present law the land adjacent to the dikes has paid one-third
of the cost of their construction. This has been a most extraordinary concession
from the plan adopted in relation to irrigation, where the general rule
has been that the land benefited should bear the entire expense. It is
true, of course, that the troublesome waters do not originate on the land
to be reclaimed, but it is also true that such waters have a right of way
through that section of the country and the land there is charged with
that easement. It is the land of this region that is to be benefited. To
say that it is unable to bear any expense of reclamation is the same thing
as saying that it is not worth reclaiming. Because of expenses incurred
and charges already held against this land, it seems probable that some
revision will have to be made concerning the proportion of cost which it
should bear. But it is extremely important that it should pay enough so
that those requesting improvements will be charged with some responsibility
for their cost, and the neighborhood where works are constructed have a
pecuniary interest in preventing waste and extravagance and securing a
wise and economical expenditure of public funds.

It is necessary to look upon this emergency as a national disaster.
It has been so treated from its inception. Our whole people have provided
with great generosity for its relief. Most of the departments of the Federal
Government have been engaged in the same effort. The governments of the
afflicted areas, both State and municipal, can not be given too high praise
for the courageous and helpful way in which they have come to the rescue
of the people. If the sources directly chargeable can not meet the demand,
the National Government should not fail to provide generous relief. This,
however, does not mean restoration. The Government is not an insurer of
its citizens against the hazard of the elements. We shall always have flood
and drought, heat and cold, earthquake and wind, lightning and tidal wave,
which are all too constant in their afflictions. The Government does not
undertake to reimburse its citizens for loss and damage incurred under
such circumstances. It is chargeable, however, with the rebuilding of public
works and the humanitarian duty of relieving its citizens from distress.

The people in the flooded area and their representatives have approached
this problem in the most generous and broad-minded way. They should be
met with a like spirit on the part of the National government. This is
all one country. The public needs of each part must be provided for by
the public at large. No required relief should be refused. An adequate
plan should be adopted to prevent a recurrence of this disaster in order
that the people may restore to productivity and comfort their fields and
their towns.

Legislation by this Congress should be confined to our principal and
most pressing problem, the lower Mississippi, considering tributaries only
so far as they materially affect the main flood problem. A definite Federal
program relating to our waterways was proposed when the last Congress authorized
a comprehensive survey of all the important streams of the country in order
to provide for their improvement, including flood control, navigation,
power, and irrigation. Other legislation should wait pending a report on
this survey. The recognized needs of the Mississippi should not be made
a vehicle for carrying other projects. All proposals for development should
stand on their own merits. Any other method would result in ill-advised
conclusions, great waste of money, and instead of promoting would delay
the orderly and certain utilization of our water resources.

Very recently several of the New England States have suffered somewhat
similarly from heavy rainfall and high water. No reliable estimate of damage
has yet been computed, but it is very large to private and public property.
The Red Cross is generously undertaking what is needed for immediate relief,
repair and reconstruction of houses, restocking of domestic animals, and
food, clothing, and shelter. A considerable sum of money will be available
through the regular channels in the Department of Agriculture for reconstruction
of highways. It may be necessary to grant special aid for this purpose.
Complete reports of what is required will undoubtedly be available early
in the session.

INLAND NAVIGATION

The Congress in its last session authorized the general improvements
necessary to provide the Mississippi waterway system with better transportation.
Stabilization of the levels of the Great Lakes and their opening to the
sea by an effective shipway remain to be considered. Since the last session
the Board of Engineers of the War Department has made a report on the proposal
for a canal through the State of New York, and the Joint Board of Engineers,
representing Canada and the United States, has finished a report on the
St. Lawrence River. Both of these boards conclude that the St. Lawrence
project is cheaper, affords a more expeditious method of placing western
products in European markets, and will cost less to operate. The State
Department has requested the Canadian Government to negotiate treaties
necessary to provide for this improvement. It will also be necessary to
secure an agreement with Canada to put in works necessary to prevent fluctuation
in the levels of the Great Lakes.

Legislation is desirable for the construction of a dam at Boulder Canyon
on the Colorado River, primarily as a method of flood control and irrigation.
A secondary result would be a considerable power development and a source
of domestic water supply for southern California. Flood control is clearly
a national problem, and water supply is a Government problem, but every
other possibility should be exhausted before the Federal Government becomes
engaged in the power business. The States which are interested ought to
reach mutual agreement. This project is in reality their work. If they
wish the Federal Government to undertake it, they should not hesitate to
make the necessary concessions to each other. This subject is fully discussed
in the annual report of the Secretary of the Interior. The Columbia River
Basin project is being studied and will be one to be considered at some
future time.

The Inland Waterways Corporation is proving successful and especially
beneficial to agriculture. A survey is being made to determine its future
needs. It has never been contemplated that if inland rivers were opened
to navigation it would then be necessary for the Federal Government to
provide the navigation. Such a request is very nearly the equivalent of
a declaration that their navigation is not profitable, that the commodities
which they are to carry can be taken at a cheaper rate by some other method,
in which case the hundreds of millions of dollars proposed to be expended
for opening rivers to navigation would be not only wasted, but would entail
further constant expenditures to carry the commodities of private persons
for less than cost.

The policy is well established that the Government should open public
highways on land and on water, but for use of the public in their private
capacity. It has put on some demonstration barge lines, but always with
the expectation that if they prove profitable they would pass into private
hands and if they do not prove profitable they will be withdrawn. The problems
of transportation over inland waterways should be taken up by private enterprise,
so that the public will have the advantage of competition in service. It
is expected that some of our lines can be sold, some more demonstration
work done, and that with the completion of the Ohio project a policy of
private operation can be fully developed.

PROHIBITION

After more than two generations of constant debate, our country adopted
a system of national prohibition under all the solemnities involved in
an amendment to the Federal Constitution. In obedience to this mandate
the Congress and the States, with one or two notable exceptions, have passed
required laws for its administration and enforcement. This imposes upon
the citizenship of the country, and especially on all public officers,
not only the duty to enforce, but the obligation to observe the sanctions
of this constitutional provision and its resulting laws. If this condition
could be secured, all question concerning prohibition would cease. The
Federal Government is making every effort to accomplish these results through
careful organization, large appropriations, and administrative effort.
Smuggling has been greatly cut down, the larger sources of supply for illegal
sale have been checked, and by means of injunction and criminal prosecution
the process of enforcement is being applied. The same vigilance on the
part of local governments would render these efforts much more successful.
The Federal authorities propose to discharge their obligation for enforcement
to the full extent of their ability.

THE NEGRO

History does not anywhere record so much progress made in the same length
of time as that which has been accomplished by the Negro race in the United
States since the Emancipation Proclamation. They have come up from slavery
to be prominent in education, the professions, art, science, agriculture,
banking, and commerce. It is estimated that 50,000 of them are on the Government
pay rolls, drawing about $50,000,000 each year. They have been the recipients
of presidential appointments and their professional ability has arisen
to a sufficiently high plane so that they have been intrusted with the
entire management and control of the great veterans hospital at Tuskegee,
where their conduct has taken high rank. They have shown that they have
been worthy of all the encouragement which they have received. Nevertheless,
they are too often subjected to thoughtless and inconsiderate treatment,
unworthy alike of the white or colored races. They have especially been
made the target of the foul crime of lynching. For several years these
acts of unlawful violence had been diminishing. In the last year they have
shown an increase. Every principle of order and law and liberty is opposed
to this crime. The Congress should enact any legislation it can under the
Constitution to provide for its elimination.

AMERICAN INDIAN

The condition of the American Indian has much improved in recent years.
Full citizenship was bestowed upon them on June 2, 1924, and appropriations
for their care and advancement have been increased. Still there remains
much to be done.

Notable increases in appropriations for the several major functions
performed by the Department of the Interior on behalf of the Indians have
marked the last five years. In that time, successive annual increases in
appropriations for their education total $1,804,325; for medical care,
$578,000; and for industrial advancement, $205,000; or $2,582,325 more
than would have been spent in the same period on the basis of appropriations
for 1923 and the preceding years.

The needs along health, educational, industrial and social lines however,
are great, and the Budget estimates for 1929 include still further increases
for Indian administration.

To advance the time when the Indians may become self-sustaining, it
is my belief that the Federal Government should continue to improve the
facilities for their care, and as rapidly as possible turn its responsibility
over to the States.

COAL

Legislation authorizing a system of fuel administration and the appointment
by the President of a Board of Mediation and Conciliation in case of actual
or threatened interruption of production is needed. The miners themselves
are now seeking information and action from the Government, which could
readily be secured through such a board. It is believed that a thorough
investigation and reconsideration of this proposed policy by the Congress
will demonstrate that this recommendation is sound and should be adopted.

PETROLEUM CONSERVATION

The National Government is undertaking to join in the formation of a
cooperative committee of lawyers, engineers, and public officers, to consider
what legislation by the States or by the Congress can be adopted for the
preservation and conservation of our supply of petroleum. This has come
to be one of the main dependencies for transportation and power so necessary
to our agricultural and industrial life. It is expected the report of this
committee will be available for later congressional action. Meantime, the
requirement that the Secretary of the Interior should make certain leases
of land belonging to the Osage Indians, in accordance with the act of March
3, 1921, should be repealed. The authority to lease should be discretionary,
in order that the property of the Indians way not be wasted and the public
suffer a future lack of supply.

ALIEN PROPERTY

Under treaty the property held by the Alien Property Custodian was to
be retained until suitable provision had been made for the satisfaction
of American claims. While still protecting the American claimants, in order
to afford every possible accommodation to the nationals of the countries
whose property was held, the Congress has made liberal provision for the
return of a larger part of the property. All trusts under $10,000 were
returned in full, and partial returns were made on the others. The total
returned was approximately $350,000,000.

There is still retained, however, about $250,000,000. The Mixed Claims
Commission has made such progress in the adjudication of claims that legislation
can now be enacted providing for the return of the property, which should
be done under conditions which will protect our Government and our claimants.
Such a measure will be proposed, and I recommend its enactment.

RAILROAD CONSOLIDATION

In order to increase the efficiency of transportation and decrease its
cost to the shipper, railroad consolidation must be secured. Legislation
is needed to simplify the necessary procedure to secure such agreements
and arrangements for consolidation, always under the control and with the
approval of the Interstate Commerce Commission. Pending this, no adequate
or permanent reorganization can be made of the freight-rate structure.
Meantime, both agriculture and industry are compelled to wait for needed
relief. This is purely a business question, which should be stripped of
all local and partisan bias and decided on broad principles and its merits
in order to promote the public welfare. A large amount of new construction
and equipment, which will furnish employment for labor and markets for
commodities of both factory and farm, wait on the decision of this important
question. Delay is holding back the progress of our country.

Many of the same arguments are applicable to the consolidation of the
Washington traction companies.

VETERANS

The care which this country has lavished on its veterans is known of
all men. The yearly outlay for this purpose is about $750,000,000, or about
the cost of running the Federal Government, outside of the Post Office
Department, before the World War. The Congress will have before it recommendations
of the American Legion, the Veterans of Foreign Wars, and other like organizations,
which should receive candid consideration. We should continue to foster
our system of compensation and rehabilitation, and provide hospitals and
insurance. The magnitude of the undertaking is already so large that all
requests calling for further expenditure should have the most searching
scrutiny. Our present system of pensions is already sufficiently liberal.
It was increased by the last Congress for Civil and Spanish War veterans
and widows and for some dependents.

It has been suggested that the various governmental agencies now dealing
with veterans' relief be consolidated. This would bring many advantages.
It is recommended that the proper committees of the Congress make a thorough
survey of this subject, in order to determine if legislation to secure
such consolidation is desirable.

EDUCATION

For many years it has been the policy of the Federal Government to encourage
and foster the cause of education. Large sums of money are annually appropriated
to carry on vocational training. Many millions go into agricultural schools.
The general subject is under the immediate direction of a Commissioner
of Education. While this subject is strictly a State and local function,
it should continue to have the encouragement of the National Government.
I am still of the opinion that much good could be accomplished through
the establishment of a Department of Education and Relief, into which would
be gathered all of these functions under one directing member of the Cabinet.

DEPARTMENT OF LABOR

Industrial relations have never been more peaceful. In recent months
they have suffered from only one serious controversy. In all others difficulties
have been adjusted, both management and labor wishing to settle controversies
by friendly agreement rather than by compulsion. The welfare of women and
children is being especially guarded by our Department of Labor. Its Children's
Bureau is in cooperation with 26 State boards and 80 juvenile courts.

Through its Bureau of Immigration it bas been found that medical examination
abroad has saved prospective immigrants from much hardship. Some further
legislation to provide for reuniting families when either the husband or
the wife is in this country, and granting more freedom for the migration
of the North American Indian tribes is desirable.

The United States Employment Service has enabled about 2,000,000 men
and women to gain paying positions in the last fiscal year. Particular
attention has been given to assisting men past middle life and in providing
field labor for harvesting agricultural crops. This has been made possible
in part through the service of the Federal Board for Vocational Education,
which is cooperating with the States in a program to increase the technical
knowledge and skill of the wage earner.

PUBLIC BUILDINGS

Construction is under way in the country and ground has been broken
for carrying out a public-building program for Washington. We have reached
a time when not only the conveniences but the architectural beauty of the
public buildings of the Capital City should be given much attention. It
will be necessary to purchase further land and provide the required continuing
appropriations.

HISTORICAL CELEBRATIONS

Provision is being made to commemorate the two hundredth anniversary
of the birth of George Washington. Suggestion has been made for the construction
of a memorial road leading from the Capital to Mount Vernon, which may
well have the consideration of the Congress, and the commission intrusted
with preparations for the celebration will undoubtedly recommend publication
of the complete writings of Washington and a series of writings by different
authors relating to him.

February 25, 1929. is the one hundred and fiftieth anniversary of the
capture of Fort Sackville, at Vincennes, in the State of Indiana. This
eventually brought into the Union what was known as the Northwest Territory,
embracing the region north of the Ohio River between the Alleghenies and
the Mississippi River. This expedition was led by George Rogers Clark.
His heroic character and the importance of his victory are too little known
and understood. They gave us not only this Northwest Territory but by means
of that the prospect of reaching the Pacific. The State of Indiana is proposing
to dedicate the site of Fort Sackville as a national shrine. The Federal
Government may well make some provision for the erection under its own
management of a fitting memorial at that point.

FOREIGN RELATIONS

It is the policy of the United States to promote peace. We are a peaceful
people and committed to the settling of disputes by amicable adjustment
rather than by force. We have believed that peace can best be secured by
a faithful observance on our part of the principles of international law,
accompanied by patience and conciliation, and requiring of others a like
treatment for ourselves. We have lately had some difference with Mexico
relative to the injuries inflicted upon our nationals and their property
within that country. A firm adherence to our rights and a scrupulous respect
for the sovereignty of Mexico, both in accordance with the law of nations,
coupled with patience and forbearance, it is hoped will resolve all our
differences without interfering with the friendly relationship between
the two Governments.

We have been compelled to send naval and marine forces to China to protect
the lives and property of our citizens. Fortunately their simple presence
there has been sufficient to prevent any material loss of life. But there
has been considerable loss of property. That unhappy country is torn by
factions and revolutions which bid fair to last for an indefinite period.
Meanwhile we are protecting our citizens and stand ready to cooperate with
any government which may emerge in promoting the welfare of the people
of China. They have always had our friendship, and they should especially
merit our consideration in these days of their distraction and distress.

We were confronted by similar condition on a small scale in Nicaragua.
Our marine and naval forces protected our citizens and their property and
prevented a heavy sacrifice of life and the destruction of that country
by a reversion to a state of revolution. Henry L. Stimson, former Secretary
of War, was sent there to cooperate with our diplomatic and military officers
in effecting a settlement between the contending parties. This was done
on the assurance that we would cooperate in restoring a state of peace
where our rights would be protected by giving our assistance in the conduct
of the next presidential election, which occurs in a few months. With this
assurance the population returned to their peacetime pursuits, with the
exception of some small roving bands of outlaws.

In general, our relations with other countries can be said to have improved
within the year. While having a due regard for our own affairs, the protection
of our own rights, and the advancement of our own people, we can afford
to be liberal toward others. Our example has become of great importance
in the world. It is recognized that we are independent, detached, and can
and do take a disinterested position in relation to international affairs.
Our charity embraces the earth. Our trade is far flung. Our financial favors
are widespread. Those who are peaceful and law-abiding realize that not
only have they nothing to fear from us, but that they can rely on our moral
support. Proposals for promoting the peace of the world will have careful
consideration. But we are not a people who are always seeking for a sign.
We know that peace comes from honesty and fair dealing, from moderation,
and a generous regard for the rights of others. The heart of the Nation
is more important than treaties. A spirit of generous consideration is
a more certain defense than great armaments. We should continue to promote
peace by our example, and fortify it by such international covenants against
war as we are permitted under our Constitution to make.

AMERICAN PROGRESS

Our country has made much progress. But it has taken, and will continue
to take, much effort. Competition will be keen, the temptation to selfishness
and arrogance will be severe, the provocations to deal harshly with weaker
peoples will be many. All of these are embraced in the opportunity for
true greatness. They will be overbalanced by cooperation by generosity,
and a spirit of neighborly kindness. The forces of the universe are taking
humanity in that direction. In doing good, in walking humbly, in sustaining
its own people in ministering to other nations, America will work out its
own mighty destiny.